China Tariff on LNG Hits Trump’s Energy Expansion Plan

On August 3rd, the Customs Tariff Commission the State Council announced plans to impose new tariffs on $60 billion of U.S. goods, in retaliation for the latest tariff threats from the Trump administration. China added U.S. liquefied natural gas (LNG) in its list of products subject to a 25% import duty. It’s the first time LNG appears on the list.

At present, China’s demand for LNG is growing rapidly. Last year, about 38 million tons of LNG was imported, which is higher than the amount in 2010 of 10 million tons and has achieved the world’s second largest importer. The United States last year supplied 4% of China’s LNG demand, making it the fifth largest supplier of liquefied natural gas in China.

The proposed tariffs would have the short-term impact on U.S. LNG exports, as the cargo can be shipped to other Asian countries where demand for natural gas is growing. But the tariffs could hit Trump administration’s energy dominance ambitions. The U.S. government has repeatedly stated that it hopes to expand its petrochemical fuel supply to its global allies, while Washington is also reducing domestic regulation to encourage increased oil and gas production. When Trump visited China at the end of 2017, there were also executives from the U.S. LNG companies.

Michael Cohen, head of energy markets research at Barclays, said, “The juxtaposition here is clear: it is hard to become an energy superpower when one of the biggest energy consumers in the world is raising barriers to consume that energy. It makes it very difficult.”

China has already reduced LNG imports from the United States in the past two months before LNG was officially included in the potential taxation list. Tariffs may eventually weaken the competitiveness of U.S. LNG and new export terminal plans for the Gulf Coast and other parts of the United States. During the period from February 2016 to May 2018, nearly 14% of all U.S. LNG vessels were purchased by Chinese buyers. However, in June of this year, China only purchased one U.S. LNG vessel, and even zero in July; in the first five months of this year, China purchased 17 LNG vessels from the United States. There are still more than 20 companies seeking to build new LNG export terminals in the United States, and tariff measures may fail to get enough buyers to support the proposed projects.

American Petroleum Institute (API) Vice President for Regulatory and Economic Policy Kyle Isakower said, “China’s retaliation will hit America’s energy industry particularly hard.” American natural gas and oil companies have been hit by US tariffs on industrial products and specialty steel. Now, the United States will face China’s tariffs on crucial U.S. exports, affecting the United States’ direct or indirect dependence on jobs in the energy industry.

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